Manuel and Margaret Karcho - Page 3

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          limitations on assessment bars respondent’s determinations for              
          each year at issue.                                                         
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.  We           
          incorporate by this reference the stipulation of facts,                     
          supplemental stipulation of facts, and attached exhibits.                   
          Petitioners Manuel Karcho and Margaret Karcho are husband and               
          wife who resided in Southfield, Michigan, at the time they filed            
          their petition.  Petitioners filed joint returns for the years in           
               Mr. Karcho had emigrated from Iran at age 12 and had very              
          little formal education.  Mrs. Karcho, who emigrated from Malta             
          at age 11, completed a high school education in the United States           
          and during the years in issue was employed as a membership and              
          billing system analyst for a health insurance provider.                     
               During the years in issue Mr. Karcho, through his wholly               
          owned S corporation, Banner Amusement Enterprises, Inc. (Banner),           
          owned and operated an amusement arcade called the Space Station.            
          Mr. Karcho had previously been employed as a manager of the Space           
          Station before purchasing all of the stock of Banner in 1985 for            
          $25,000 in cash and a $25,000 note to the seller.  Mr. Karcho               
          continued to manage the operations of the arcade during the years           
          in issue, with some part-time help.  The arcade was open 7 days a           

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